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(LtoR) Russian Minister of Energy of Russia Alexander Novak, Organization of the Petroleum Exporting Countries’ (OPEC) President UAE Energy Minister Suhail al-Mazrouei and OPEC Secretary General Mohammed Sanusi Barkindo of Nigeria speak during a ministerial level meeting during with OPEC members and non members during the 175th OPEC Conference on December 7, 2018 in Vienna, Austria. (Photo by JOE KLAMAR / AFP)

The Organisation of Petroleum Exporting Countries (OPEC) and other major oil producers yesterday agreed to cut about 1.2 million barrels of oil to address falling oil price, which is currently facing a record low of $63 a barrel.

The deal made possible by the cartel and allied oil-producing nations including Russia would see the15-member OPEC members to reduce production by 800,000 bpd, while Russia and the allied producers would reduce output by 400,000 bpd daily.

Nigeria, which was previously exempted from similar agreement, was unable to secure a deal as Iran, currently facing sanction from U.S, Venezuela and Libya were exempted.

The development, according to experts including the vice president, macro oils, at Wood Mackenzie, Ann-Louise Hittle, President of the Nigerian Association for Energy Economics, Prof. Wumi Iledare and Director, Centre for Petroleum, Energy Economics and Law (CPEEL), University of Ibadan, Prof. Adeola Adenikinju noted that Nigeria’s expected revenue from oil sector would decline.

The Minister of Petroleum, Industry and Mineral Resources of the Kingdom of Saudi Arabia, Khalid Al-Falih and his Nigerian counterpart, Ibe Kachikwu had last week in Abuja discussed the need to bring about a stabilisation in the crude oil price and in the international crude oil market.

With the development, implementation of Nigeria’s 2018 budget, benchmarked at $51 per barrel and daily production of about 2.2 million barrel could become elusive, the experts said.

Although OPEC had struggled to reach an agreement because Saudi Arabia reportedly had refused to agree to an exemption for Iran, the deal was reached with Russia agreeing to cut output by 200,000 barrels per day while Moscow agreed on a specific reduction.

Speaking after the OPEC/non-OPEC production agreement was announced in Vienna, Hittle said: “We expected a deal. The stakes were high given the excess supply the market faces in 2019.

“The complicated issues facing OPEC delayed the agreement, in what seemed like a replay of the delicate talks that led to the first OPEC/non-OPEC production cut agreement in December 2016.

“This time, however, rather than the talks leading up to the deal being held over months, they were largely held this week.”

According to her, production cut of 1.2 million b/d would tighten the oil market by the third quarter of 2019 and cause prices to rise back above $70 per barrel for Brent.

“It would help producers contend with the strength of US supply growth in 2019 when we expect a year-on-year increase of 2.4 million b/d in non-OPEC production as US supply continues to gain sharply.

“That compares to our forecast for oil demand to increase by just 1.1 million b/d in 2019, leaving little room for a significant increase in OPEC production next year and making a production cut necessary to stabilise prices. For most nations, self-interest ultimately prevails,” she said.